MARKETS The Latest Trend in Mobile Gaming: Stock-Trading Apps Apps such as Robinhood and Webull are drawing in young and often inexperienced investors; ‘bringing the ability to make foolish decisions to an ever-broader swath of people’ Commission-free trading apps such as Robinhood have drawn millions of users who are new to financial markets, with all the associated risks and benefits. PHOTO: ANDREW HARRER/BLOOMBERG NEWS 27 COMMENTS By Lisa Beilfuss Jan. 22, 2019 7:00 a.m. ET Morgan Snipes downloaded the Robinhood Markets Inc. app on his phone nine months ago with a plan to leave his day job behind. The stock market has turned into a game for inexperienced investors like 35-year-old Mr. Snipes, a small-business owner from Oklahoma City, thanks to commission-free trading apps. With simple designs, alerts and the ability to win free shares for recruiting friends, apps such as Robinhood, Webull, M1 Finance and JPMorgan Chase & Co.’s You Invest have drawn millions of users who are typically young, new to the markets and experiencing volatility for the first time. Users say they check their app as often as their social-media accounts, trading to kill time with the hope of easy riches. “I’m new to investing and I’m attempting to make a profession out of it,” said Mr. Snipes, who started with $5,000 in his account and pays a monthly fee to purchase more buying power in the form of a margin loan. Thanks in part to investing gains, the account balance is now more than $50,000, Mr. Snipes said, but for now he is still running his property-management business. Some say the risk for novice investors is reminiscent of the early 2000s tech-stock boom, when online trading became ubiquitous and brought Wall Street to Main Street. Then, many first-time investors flocked to E*Trade Financial Corp. and other electronic brokers, chasing internet and biotechnology stocks higher until those companies went bust. “Much like easy, self-directed electronic trading allowed people to use broker-dealers to gamble in the stock market, free apps and this bull market are bringing the ability to make foolish decisions to an ever-broader swath of people,” said Ben Edwards, business and securities law professor at University of Nevada Las Vegas. The risks were brought into sharp relief late last year when volatility returned with a vengeance to the stock market amid worries about trade tensions with China and the pace of the Federal Reserve’s interest-rate increases. The S&P 500 tumbled 14% in the fourth quarter, hitting its lowest level since April 2017. The index has since rebounded 14% from its Christmas Eve low. As volatility remains elevated, so has investor engagement. Although Robinhood declined to comment on users’ trading activity, other online brokerages have reported surging activity. Market for the MassesIndividual investors at Schwab were moreactive than ever in December.Daily average revenue tradesSource: Charles Schwab Corp. .trades2017’180100,000200,000300,000400,000500,000 Charles Schwab Corp. , the largest e-broker by far, said Wednesday that trading by brokerage clients hit a record in December. That surpassed a previous high set in February 2018 when volatility first roared back after a decadelong lull. At M1 Finance, net inflows and buying in the final days of 2018 were the highest ever, said founder Brian Barnes. Mr. Snipes, for one, said he mainly traded shares of pharmaceutical companies, considered defensive plays, during December’s market swoon. He also made a bet on newly public synthetic DNA company Twist Bioscience Corp. , buying 900 shares in increments and making about $7,000 on paper. The ability of Robinhood and other apps to draw customers is reflective of individual investors’ leaps into the stock market over the past year after sitting out most of a decadelong bull run. Since launching in 2013, Robinhood has amassed about 6 million clients. It has gained 1 million alone since last July and has more users than E*Trade. Observers say the apps’ accessibility and ease of use is a mixed blessing. Although technology and low fees help more people invest, trading often can erode long-term investment gains when investors react to short-term price swings. “Trading is a zero-sum game, with individuals pitted against professionals,” said Brad Barber, finance professor at University of California Davis. He said trading apps can be a useful gateway to long-term investing via cheap, diversified index funds, but said apps can encourage people to become stock pickers who aren’t building wealth and aren’t properly diversified. Robinhood co-founder Baiju Bhatt said in a September interview that Robinhood’s users engage with the app the way they engage with Instagram or WhatsApp, as opposed to rival e-brokers. Those with positions check the app an average of 10 times a day, he said, adding that those who actively trade tend to do so in low-price stocks. “We generate a ludicrous amount of trades in $1 to $5 stocks,” Mr. Bhatt said. “Because we’re free, we’re the only place where you can day trade stuff like that.” Rival e-brokers charge flat fees for each trade, which isn’t economically feasible for small numbers of low-price stocks. Robinhood is also a destination for users who want to trade options and cryptocurrencies free of transaction costs. But critics say commission-free doesn’t mean trading is actually free. Most e-brokers sell client orders to high-speed traders. In return, Schwab, Fidelity Investments, TD Ameritrade Corp. and E*Trade pass some of that profit back to clients, in the form of slightly better prices for trades. As a result, a client might buy a share at a slightly lower price. Robinhood appears to be taking more cash for selling client orders than rivals, regulatory filings show, and it is unclear whether Robinhood users receive the corresponding savings. Rachel Putman of Fort Smith, Ark., who has been trading on Robinhood for about six months.PHOTO: RANA YOUNG FOR THE WALL STREET JOURNAL Robinhood declined to comment. Rachel Putman of Fort Smith, Ark., has been trading on Robinhood for about six months. Her Robinhood account is what she calls her play account, which is separate from her managed, work-sponsored investment account. She says she is conscious of the urge to trade impulsively, often fighting it while her friends fall victim. Ms. Putman pulls up the app when she has a few minutes to spare, often texting with her friends to compare trades and enjoying the thrill of competition that she likens to Words with Friends, the multiplayer word-game app based on Scrabble. “I know it’s not the most responsible way to get into investing,” Ms. Putman said. “It’s easy gambling—on your phone, in your pocket…and you could lose it all in the checkout line.”